How will the MCO 2.0 pan out for the Malaysian economy and stock market?

IMPACT from a return of the movement control order (MCO 2.0) on the Malaysian economy is expected to be contained given that more than 80% of the economic sectors are allowed to operate though with some limitation.

Fresh new fiscal stimulus could be on the cards if the COVID-19 situation worsens and pushes for an extended period of lockdown, according to PublicInvest Research. Notable government assistance rolled out last year include the Prihatin, Prihatin Plus, Penjana and KITA Prihatin packages.

As for the MCO 2.0’s impact on the stock market, the research house named the obvious sectors to be hit as those which are tourism-related such as hotels and airlines given the prohibition of cross-border travel.

“Gaming (casinos and number forecast operators) may be deemed non-essential, and may be shuttered once again,” projected PublicInvest Research.

“The consumer sector may not be as badly affected, however, as most sub-segments are likely to remain open, although the notable drop in expected footfall could crimp sales.”

Yesterday, Prime Minister Tan Sri Muhyiddin Yassin announced a 14-day MCO beginning 12.01 midnight on Wednesday (Jan 13) until Jan 26 in Penang, Selangor, Federal Territories (Kuala Lumpur, Putrajaya, Labuan), Malacca, Johor and Sabah to curb the spread of COVID-19.

Only five economic sectors will be allowed to operate during MCO, namely (i) manufacturing and production; (ii) construction; (iii) services; (iv) trade and distribution; and (v) plantations and commodity.

Meanwhile, the research house expects longer-term cyclical recovery plays – on stronger economic growth and gradual return to normalcy – for the banking, oil and gas (O&G) and construction sectors to be slightly delayed but remain on track.

“Fundamentally, we retain our ‘overweight’ stance on the manufacturing, technology, furniture, O&G and rubber glove sectors,” added PublicInvest Research.

MIDF Research expects the current situation of MCO to be a lot different than what had been experienced during the first MCO.

“Both businesses and consumers have better clarity and most adapted to the new norm and made necessary changes to survive such as by moving trade of goods and services online,” reckoned the research house.

“In addition, the ambiguity is lesser now as we are aware that these restrictions could just be a temporary nuisance as COVID-19 vaccine is just a few months away to be widely available in the country.”

Sectors that will likely be affected by the restrictions will be wholesale and retail trade which will see lower sales as a result of reduced outside home consumption with more Malaysians returning to a full work-from-home arrangement.

“Meanwhile, other sectors which had benefited from the recent rise in domestic tourism such as restaurants and accommodation services will once again hit by the travel restrictions and prohibition to accept dine-in customers,” projected MIDF Research.

“Non-essential businesses such as recreational services and entertainment & leisure, will be hit by another round of closures and lower demand.”

Although domestic consumption is expected to weaken because of the latest MCO, the option to place orders online and the availability of home delivery will continue to contribute towards growth for the local consumption spending.

TA Securities Research expects financial impact from the MCO 2.0 to be lesser than the estimated RM2.4 bil per day previously with importance given to the key economic sectors and the partial lockdown.

To re-cap, even the conditional MCO (CMCO) from October 6 till Dec 6 incurred losses estimated at RM17 bil or RM280 mil per day. – Jan 12, 2021

Share on facebook
Share on twitter
Share on whatsapp
Share on email

Subscribe and get top news delivered to your Inbox everyday for FREE